Economic growth

The problem with Hunt’s ‘back to work’ budget

philmullan Economic growth, Productivity, Employment, Investment, Economic policy

In January, prime minister Rishi Sunak announced his five key priorities for 2023. Conveniently for him, his first priority was something that is very likely to happen regardless of what his government does. Sunak’s top pledge to ‘halve inflation’ came a few days after just about every new-year economic prediction said that inflation would fall by at least half during 2023. Chancellor Jeremy Hunt adopted a similar hollow ploy in his budget statement yesterday, setting himself up to take credit for something that is already happening anyway.

Alongside all the familiar, disingenuous boasts about promoting growth and business investment, Hunt also placed a distinct emphasis on this being a ‘back to work’ budget. He highlighted the importance of ‘tackling labour shortages that stop [businesses] recruiting… by breaking down barriers that stop people working’. Yet ever since the threat of further pandemic shutdowns lifted last year, people have already been returning to work, pretty much as normal. So why the focus on getting people back to work now?

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How not to grow the economy

philmullan Creative destruction, Economic growth, Economic policy, State intervention, Zombie economy

Despite the many legitimate criticisms of the short-lived Liz Truss administration, it did leave one exceptional legacy. It put the question of economic growth, and the importance of raising productivity, back on the mainstream political agenda.

It took an extraordinary triple whammy – the pandemic lockdowns, the post-lockdown disruptions to global supply chains, and the war in Ukraine – to finally force the British political class, in the shape of the Truss administration, to acknowledge the dire state of the economy.

Hence, over recent months, Conservative and Labour front benches have been talking about the importance of growing the economy. In January, prime minister Rishi Sunak announced five key pledges to address people’s ‘priorities’. The following month, Labour leader Keir Starmer countered with his ‘five missions for a better Britain’. A commitment to economic growth was at the centre of both parties’ five-point plans.

Both plans have been criticised for vagueness. But there is a deeper problem with Labour’s and the Tories’ approach to the productivity slump. While both parties have bought into the new economic consensus – that is, the belief that low business investment is at the root of lacklustre growth – they also share the belief that businesses need more state financial support. In today’s circumstances, though, this would mostly act to entrench the low-growth quagmire.

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The myth of Britain’s missing workers

philmullan Covid-19, Economic growth, Economic policy, Employment

The discussion over labour shortages, especially in the UK, has been characterised by excessive fatalism. Bewildered commentaries have presented labour shortages as both the big economic problem of our age and the consequence of forces beyond our control. As if they were just the inevitable, irreversible consequence of the pandemic and subsequent lockdowns in 2020 and 2021. There is even talk of a ‘Great Resignation’ or a ‘Great Retirement’.

The evidence suggests otherwise. The impact on the labour force from the lockdowns and their lifting has been hugely disruptive. But it has not permanently diminished the size of the workforce. In fact, by the end of last year, total employment levels had already mostly recovered – to only 251,000 below pre-pandemic levels. Vacancies were also falling by the end of 2022, with 166,000 fewer vacancies reported than at its pandemic peak. In the second half of 2022, the working-age inactivity level had also fallen from its earlier peak (by 125,000). Towards the end of 2022, employment levels for over-49s had pretty much returned to pre-pandemic levels. And there were fewer retired people aged under 65 at the end of last year compared to before the pandemic. The ‘Great Retirement’ has become a small unretirement. So, despite the gloomy fatalism, the labour market has in fact been getting back to normal.

This doesn’t mean that everything is hunky dory in the employment world, of course. The pre-pandemic causes of our economic malaise and the problems in the labour market remain. Above all, investment levels remain as low as ever, meaning that there are way too many poor-quality, low-productivity and low-paying jobs on offer – and too few decent jobs for people who want them.

The numbers of ‘missing’ workers from the economic turmoil of lockdown are neither mysterious nor especially surprising. They are certainly not today’s top socio-economic problem. The unusual features of the current British labour market are primarily the consequence of lockdowns hitting an already anaemic economy. In future, policy discussions on the labour market, or other economic challenges, should address the causes of Britain’s protracted economic slump. That way, we might be able to start solving it.

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Britain has given up on growth

philmullan Economic growth, Economic policy, Inflation, Productivity

Many of us will have lost count of the number of ‘growth plans’ announced by the Conservatives over the past decade or so, but one thing is common to them all. They have made no difference whatsoever to Britain’s productivity slump. After 12 years of Conservative economic plans, strategies and frameworks, private-sector productivity is only five per cent higher than it was when the Tories took office. Come rain or shine, pandemic or no pandemic, in the EU or out of it, with low business taxes or high businesses taxes, productivity has barely budged at all.

Despite the failure of all the previous plans to revive productivity growth, probably none was as insubstantial as chancellor Jeremy Hunt’s last week. The absence of policy content was remarkable.

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Why Trussonomics imploded

philmullan Creative destruction, Economic growth, Economic policy, Politics, Productivity

As the Conservative Party descends into chaos again following Liz Truss’s resignation, can we draw any lessons from the failure of her plans for the economy? How should we understand the now-abandoned ‘Trussonomics’? And could it have made any real economic difference, if it had been given the chance?

One lesson is that whoever emerges as the next prime minister is unlikely to solve our problems. This is not just a reflection on the individuals involved. Any new leader, regardless of their economic insights and thoughts, is likely to be caught in the stranglehold of Westminster. Over several decades, the political class has absorbed the undemocratic notion that governance is a process of delivery, rather than of leading and persuading people about how things might be changed for the better.

Truss’s government failed to understand that the only audience that it should be accountable to is the electorate, not the fetishised ‘financial markets’, the International Monetary Fund (IMF) or the Office for Budget Responsibility (OBR). Not that Truss or her legion of critics understood this.

The fatal flaw of Truss’s brief administration is that having sensed that a growth plan would be disruptive, Truss and her team failed to lead the UK through those great upheavals. They failed to bring the people with them. This was a dereliction of democratic duty. People aren’t going to put up with ‘disruption’ as an edict from Downing Street. They can’t be expected to just go along with it. They need to understand the reasons for the economic tumult. Ultimately, they need to understand why it is necessary to reorganise and rebuild production anew.

Read the full article here.